Are Americans Too Broke to Own Bank Accounts?

Source: Thinkstock

Source: Thinkstock

If you want to know how broke some Americans are these days, just look at their bank accounts, or lack thereof. A new report finds that one in 13 households in the United States do not have bank accounts, with the most common reason cited being a lack of money.

Despite an economy that is slowly improving from the Great Recession, millions of Americans are unbanked. According to the FDIC and Census Bureau, 9.6 million households representing 25 million people were unbanked in 2013, down only 0.5% from 2011. In fact, 24 million households representing 68 million people were underbanked last year, meaning they had a bank account but also relied on alternative financial services outside of the traditional banking system.

“In many cases, financial life events such as job loss, significant income loss, or a new job, appear to be important reasons why households leave or enter the banking system,” explains the report. “Recently unbanked households were relatively more likely to have experienced adverse financial life events such as job loss or significant income loss. Because these results show that adverse financial events appear to be more closely associated with bank account closing decisions than other types of life events, policy makers and industry participants might consider ways to cushion the impact of adverse financial shocks on a household’s ability or desire to maintain a bank account.”

Affordability is the primary concern among unbanked households. The report found a lack of money was the primary reason that 35.6% of households were unbanked last year, more than double the 14.9% of households who said they were primarily unbanked because of trust issues. More than half said not having enough money was at least part of the reason for not having a bank account. Furthermore, 31% said high or unpredictable account fees were part of the reason.

How do the unbanked and underbanked survive financially? One in four households reported obtaining either transactional products or credit from non-bank providers in the past year, such as payday loan providers or pawn shops. Overall, households reported that “grocery, liquor, convenience, or drug stores” were the most common locations for obtaining transaction alternative financial services. Ironically, these alternative financial services can have some of the highest fees in town.

Prepaid card use is also a popular method among unbanked households, and has been growing rapidly. Over the past year, 22.3% of unbanked households used a prepaid card, compared to 13.1% of underbanked households and 5.3% of fully banked households. Last year, 27.1% of unbanked households reported having ever used a prepaid card, up from 17.8% in 2011 and 12.2% in 2009.

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